DLF and Lime... Banks See Nearly 40% Decrease in Private Fund Sales Accounts (Comprehensive)

Last December, 37,409 Units Recorded... All-Time High, Shrinking by 37.1% Compared to June Last Year
Outstanding Sales Also Decreased by 12.5%... Larger Decline in Woori and Hana Due to DLF Incident

[Asia Economy Reporter Kangwook Cho] After the overseas interest rate-linked derivative-linked fund (DLF) that caused massive principal losses last year and the Lime Asset Management redemption suspension incident, the number of private equity fund investors who purchased products through banks has decreased by nearly 40%. The reduced amount exceeds 3 trillion won. This is interpreted as a result of a series of issues causing not only private equity funds but also consumer trust in banks to plummet due to incomplete sales.

According to the Korea Financial Investment Association on the 4th, as of the end of December last year, the number of private equity fund sales accounts at banks was 37,409. This is a 37.1% (22,106 accounts) decrease from the record high at the end of June last year. The number of private equity fund sales accounts at banks has decreased for six consecutive months since the end of June last year. As the number of sales accounts decreased, the sales balance also shrank by 12.5% (3.6281 trillion won) from 28.9634 trillion won at the end of June last year to 25.3353 trillion won at the end of December last year.

Among commercial banks, Woori Bank and Hana Bank, which received heavy sanctions for incomplete sales of DLF, saw the largest decreases. Woori Bank's private equity fund sales accounts dropped 54.9% from 15,727 at the end of June last year to 7,094 at the end of December, and the sales balance also plunged 35.8% (2.6736 trillion won) from 7.4945 trillion won to 4.797 trillion won. During the same period, Hana Bank's sales accounts decreased 41.5% from 15,966 to 9,334, and the sales balance fell 20.4% (817 billion won) from 3.9975 trillion won to 3.1805 trillion won. In particular, the decrease among individual customers was significant. At Woori Bank, 7,556 accounts, or 87.5% of the 8,633 reduced accounts, were individual customers, and at Hana Bank, 6,484 accounts, or 97.8% of the 6,632 reduced accounts, were individual customers. Shinhan Bank's private equity fund sales accounts also decreased 13.9% (1,083 accounts) from 7,792 at the end of June last year to 6,709 at the end of December. Individual customer accounts accounted for 886, or 81.8%. The balance decreased 8.2% (403.8 billion won) from 4.9405 trillion won to 4.5367 trillion won. Among the four major commercial banks, only Kookmin Bank saw an increase in private equity fund sales accounts from 6,127 to 6,455, a 5.4% rise during the same period. The sales balance also increased 14.7% (814.4 billion won) from 5.5413 trillion won to 6.3557 trillion won.

The decline in private equity fund sales by banks appears to be due to banks, which have traditionally handled stable financial products such as savings and deposits, recklessly selling high-risk private equity funds that incur principal losses to individual customers, resulting in a loss of trust. The Financial Supervisory Service pointed out excessive sales activities and poor internal controls by banks and decided that up to 80% of investment losses should be compensated. It also passed a heavy disciplinary warning against the CEOs of Woori Bank and Hana Bank.

Large banks have had to pay astronomical compensation amounts due to incomplete sales of various financial products. As of the 30th of last month, Woori Bank had reached agreements with 466 customers, or 70.5% of the 661 DLF compensation-eligible customers, and paid 26.7 billion won in compensation. Hana Bank, which has completed about 40% of voluntary compensation, plans to set aside reserves related to DLF. Since the maturity of the products will sequentially arrive from September this year, this is interpreted as preparing for potential losses.

On the other hand, private equity fund sales by securities companies and insurance companies have steadily increased. During the same period, securities companies' private equity fund sales accounts increased 5.0% (4,048 accounts) from 80,545 to 84,593, and insurance companies' accounts rose 15.9% (173 accounts) from 1,086 to 1,259. The sales balance also grew 9.4% (28.9823 trillion won) from 307.742 trillion won to 336.7243 trillion won for securities companies, and 16.6% (5.9415 trillion won) from 35.8399 trillion won to 41.7814 trillion won for insurance companies.

The decline in private equity fund sales by banks is expected to continue. In November last year, financial authorities decided to restrict the sale of high-risk private equity fund products with embedded derivatives that are difficult for investors to understand and could lose more than 20% of the principal.

A banking industry official said, "The authorities plan to restrict banks from selling high-difficulty private equity funds and raise the minimum investment amount for general private equity fund investors from 100 million won to 300 million won." He added, "With regulations already tightened, incomplete sales controversies are further lowering trust in the banking sector, making it even more difficult to sell financial products in the future."

This content was produced with the assistance of AI translation services.